Two months ago, I wrote a blog post about ways people pretend to have their money sh*t together, and I got a lot of responses from readers who loved it. Apparently you all know people who are good at keeping up appearances … or maybe you just like when I include partially-obscured curse words in headlines?
Either way, I’d like to follow that post up with the sequel: all of the jaw-dropping, head-scratching things people do with their money. Believe me, I see these things all the time. And maybe a few of you have (ahem) committed some of them.
If so, you have nothing to be ashamed of. We’ve all taken well-meaning yet terrible advice from loved ones, and made mistakes out of ignorance, shame, or fear. And what matters most isn’t that you goofed — it’s what you learn from the error and do next.
Take it from me: I bought more house that I could afford at 21 (at the top of the market, no less!), but it was that experience that led me to become a financial planner. If you made a financial mistake, not only are you in good company, but it could lead to some positive changes in your life, too.
So, what is some unbelievably stupid sh*t I’ve seen people do with their money? Read on!
1. They Make Early Withdrawals From Their Retirement Accounts
If you contribute to a 401(k) or IRA, pat yourself on the back. By starting your retirement savings at a young age, you’re on the path to a comfortable retirement.
Unless you withdraw money from those accounts for non-qualified reasons. Then you’re making bad decisions. Here’s why: any withdrawal you make before you turn 59½ is subject not only to income tax, but also a 10% penalty. So you get to pay a huge price while shortchanging yourself in the long term by not letting that money grow over a long time. Lose-lose.
You can make qualified early withdrawals for things like buying your first home, supporting yourself if you become disabled and can’t work, or funding education expenses. But before you touch that money, do your research.
2. They Gift Money to Loved Ones While Struggling Themselves
Many families have the expectation that older generations will be supported by younger ones, and 20% of Millennials help their parents out financially. I think it’s beautiful when families rally around to help each other out in times of need, but you should be realistic about what sum of money (if any) you can comfortably give.
Before gifting any money, set aside what you need to cover bills and debt payments, as well as savings for longer-term goals and retirement. If you have money left over and you’d like to spend it on helping someone out, at least your expenses are covered first.
As the saying goes, don’t set yourself on fire to keep someone else warm.
3. They Go to Grad School Without a Plan
Our generation was taught that higher education was a guaranteed path to success. How well has that worked out for us? That sound you hear are thousands of underemployed lawyers crying over their student loan balances.
Here’s the thing with grad school: certain fields require it, and if you’d like to work in those fields, you should probably go grad school. For everyone else, think long and hard before you sign up for six-figure debt and a few years out of the workforce.
You might find more success seeking out relevant work experience or taking a class or two on the side, rather than getting a master’s or PhD.
4. They Think Buying a House is a Good Investment
Stop believing the myth! A house is a place to live, not a guaranteed source of investment income. Historically, home prices have matched inflation, not beaten it.
We’ve all heard stories from friends who’ve made a profit when selling a home, but you need to keep in mind the costs of maintaining that home, too. Profit is more than just what you sold your home for, minus what you bought it for. Over the years you own a home, you will spend thousands on maintenance and renovations.
Ignore the pressure to buy and do what works best for your situation. If you plan to stay in one city for a long time, educate yourself on all the up-front and ongoing costs of home ownership. Only then can you decide if buying makes more sense for you than renting.
5. They Give in to FOMO
Fear of Missing Out gets a lot of people into financial trouble. It’s hard to skip the fun dinners out, the impossible-to-get tickets to Hamilton, and all those destination bachelorette parties.
But you’re digging yourself into a deep financial hole by saying yes to everything, especially if you rack up credit card debt to pay for these things.
Now, I’m all for spending money on experiences, but it has to be money you actually have on experiences that actually matter to you. So maybe you skip a few fancy dinners to afford those Hamilton tickets without going into debt.
Despite how curated and perfect everyone’s lives look on social media, I promise that most of your friends are also struggling to afford every vacation and new pair of shoes they #humblebrag about. Or they did the responsible thing and saved up for a while to afford those luxuries!
6. They Stick Their Heads in the Sand
If you’re getting phone calls from creditors about overdue bill and loan payments, it’s really easy to just not pick up. They can’t hurt you if you ignore them, right?
Wrong. The debt will continue to grow because of the interest on the loan. Unpaid debts show up on your credit report, affecting your ability to get accepted for a credit card or loan in the future. A bad credit score can even affect your ability to get a rental apartment or cell phone plan. Debt collection agencies might try to sue you. If you don’t pay back federal student loans, the government can garnish your wages and take your tax refunds.
It’s never good to ignore your debts. If you’re having trouble making your monthly payments, call the creditor and explain your situation (like you just lost your job or are going through expensive medical treatments). If you can show them that you’re serious about repaying your debt, you could negotiate different loan terms.
6 Things To Do Instead
Learning how to manage your money can be intimidating, but if you follow a few simple guidelines, you’ll be okay.
- Keep track of how much money you earn and spend.
- Make adjustments to your spending based on your values and priorities.
- Don’t ignore the scary stuff like debt repayment.
- Build up savings.
- Save for retirement.
- Stop looking at your friends’ Instagram photos.